Acquisitions drag NetComm into the red - UPDATE

Stuart Corner
Tuesday, 12 September 2006 04:32

IT Industry - Strategy

NetComm (ASX: NTC) has announced a 7.4 percent increase in operating revenue to $22.4 million and a net loss after tax of $1.2 million for the year ended 30 June 2006, compared to a profit of $0.97 million last year.

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It attribute the loss, foreshadowed in May,  to one-off costs associated with longer term repositioning, including the recent acquisitions of Dynalink New Zealand and  of Askey Australia.

EBITDA was negative $0.68m, $0.41m of this attributable to the newly acquired subsidiaries. The company said that "stringent cost efficiency measures undertaken over recent months as these new subsidiaries are integrated with the parent company are indicating substantial improvements in profitability and a substantial turnaround is expected by year end."

Managing director, David Stewart said: "This has been a transformational year for NetComm...We have invested significantly to strategically reposition the company to compete with higher value, higher margin technologies targeted at the small to medium business sector. While this investment and the associated acquisition costs have resulted in a loss this financial year, we are already starting to see the benefits of this strategy and the company remains confident that it will deliver enhanced shareholder value over the longer term." he said.

Stewart said NetComm's overall outlook for the next 12 months is positive with "With new business products and solutions being released in Australia and New Zealand, we are confident our shareholders will see stronger returns from these products over the coming year. We have also secured access to other international markets where we expect to announce additional sales shortly."

Stewart described NetComm as "a leading designer of broadband equipment for Australia," however its results show "product research and approvals" at just $182,000.

UPDATE. Stewart later responded, saying:  "The whole of this amount is actually approval costs from the labs and does not include any research and development...The majority of research costs are simply wages for development engineers and these are included in the "employee expenses" in our 4E Accounts. We have the equivalent of eight full time engineers in our product development team who draw wages. All of their other costs are absorbed in ‘general expenses’."

 He added: "We have maintained a constant accounting standard and don't capitalise any research and development, unlike many other technology companies.  We take a conservative view and expend research as it occurs."